- August 26, 2008
- All Connecticut Issuing Offices
- Avoid Insuring Foreclosure "Rescue" Scams
Foreclosure rescue scams are on the rise in Connecticut, New England and the country. The Connecticut Department of Banking, the FDIC and the Federal Trade Commission (FTC) are advising homeowners who are having problems meeting their monthly mortgage obligations that con artists acting as phony "mortgage counselors" are targeting them with sham mortgage-rescue and credit-repair scams. The scam is generally referred to as "equity skimming" mortgage fraud. Numerous states have passed legislation making such scams illegal and subject the perpetrators to criminal and civil penalties. (See District of Columbia legislation on the subject entitled the "Home Equity Protection Act of 2007" (D.C. Act A17-205).)
Here in Connecticut, the Governor, through her Sub-Prime Committee Task Force has called upon the Connecticut Legislature to enact a Connecticut Mortgage Fraud Statute including civil and criminal penalties for all participants in such a mortgage fraud transaction including attorneys.
In these "rescue" scams, the con artists promise to save the borrower's home from foreclosure, when actually they are intent upon stealing title to the home or the equity accumulated therein. Here are some examples of reported predatory scams:
- The foreclosure prevention specialist: The specialist is really a phony counselor who charges hefty fees in exchange for making a few phone calls or completing some paperwork that a homeowner could do for him or herself.
- The lease/buy back: Homeowners are deceived into deeding title to the home to a scam artist who allows the homeowner to remain in possession as a renter so he can eventually buy it back. But the buy-back terms are so demanding they are impossible to meet. The homeowner is evicted, and the "rescuer" walks off with the equity.
- The bait and switch: Homeowners think they are signing documents to bring their mortgage current, when actually they are signing over the deed to their home. They do not realize the scam until they get the eviction notice.
Attorneys must be extremely cautious in counseling clients in this regard and also closing any transaction that may be part of one of these schemes. If you contact one of these "rescue" companies they will seek to convince the caller that they are providing a public service by helping a homeowner in default. In fact, they are only helping themselves steal the equity out of the property.
If a foreclosure consultant approaches you or a client is working with one, do not agree to close or insure the transaction without first contacting State Underwriting Counsel for Stewart Title Guaranty Company.
While it is not always easy to determine whether a foreclosure rescue scam is being attempted, there are certain telltale signs, which may indicate that an improper "rescue" is in the works. These include:
a. Beware of any sale transaction in which the seller is remaining in possession of the property after closing.
b. Watch for any sale transaction in which the existing debt is not being paid off and the seller is not being specifically released by the lender.
c. Look out for any "creative" transactions including those with leaseback arrangements or equity participation.
d. Be cautious in any transactions in which a foreclosure notice has been filed or you otherwise know that the loan is in default.
e. Excessive fees to a third party are another red flag.
The State of Connecticut, with the help of several lending institutions has established many programs to help homeowners avoid foreclosure:
- The Department of Housing and Urban Development (HUD) 1-800-569-4287; NeighborWorks America/Homeowner's HOPE 1-888-995-4673; Neighborhood Assistance Corp. of America (NACA) 1-203-562-6220 provide approved housing counselors for homeowners in default on their mortgages.
- Connecticut Dept. of Social Services (DSS) has several housing programs including an Eviction and Foreclosure Prevention Program (EFPP). Dial 211, which is also the number to call for single source community service information here in Connecticut.
- Connecticut Housing Finance Authority (CHFA) 1-860-721-9501 provides direct funds and refinance options through participating lenders to CT residents.
The Connecticut State Department of Banking at its website at http://www.ct.gov/dob has collected information, phone numbers and other website links to help homeowners who are in mortgage trouble, or call them at 1-860-240-8299. The Connecticut Governor's Sub-Prime Mortgage Task Force has also established a Mortgage Assistance Hotline at 1-877-772-8313 for state residents.
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